Innovative Solutions and Support Inc (ISSC) 2007 Q3 法說會逐字稿

Good morning. My name is Elsa and I'll be your conference operator today. At this time, I would like to everyone to the Innovative Solutions & Support third quarter earnings release conference call. (OPERATOR INSTRUCTIONS)

Thank you. It is now my pleasure to turn the floor over to your host, Mr. Geoffrey Hedrick, Chairman of the Board and Chief Executive Officer. Sir, you may begin.

Good morning, I'm Geoff Hedrick and Chairman of IS&S. I'm delighted with the opportunity to introduce Ray Wilson, who has assumed responsibility as CEO of IS&S. We are truly fortunate to have a man of Ray's background and caliber. His hands-on experience as a manufacturing engineer early in his career, and his work at Airbus as Executive Vice President and Member of the Executive Committee, Ray brings a remarkable blend of large company discipline with a palpable understanding and appreciation of the unique disciplines and requirements of a smaller energetic company like Innovative Solutions and Support.

I have known Ray for about five years, both as a customer, and a colleague on the Board of Directors. His vision and commitment to doing what he says he will do, struck me from my early meetings. It is with pride and personal enthusiasm that I welcome Ray as our CEO.

The company is far stronger today than it was just a year ago. Our backlog has grown to almost $75 million, and that $75 million is spread out over four and a half odd years, providing a strong underpinning for our future growth. It will provide a stable keystone upon which we will continue to expand and grow the business with our traditional book and ship perspective.

Today I would like to turn the meeting over to our CFO, Jim Reilly, and he'll read our safe harbor message. Thank you.

Thanks Geoff, and thank you all for being on the call this morning. Certain matters discussed in this conference call today, including operational and financial results for future periods, are forward-looking statements that are subject to risks and uncertainties, that could cause actual results to differ materially, either better or worse, from those discussed, including other risks and uncertainties reflected in the company's 10K, which is on file with SEC.

Now I'd like to take a few moments to address last night's press release. Revenues in our third quarter were $5.8 million and almost double third quarter revenues in 2006 of $3 million. On a sequential basis, revenues were up also by about $1.9 million or 48% compared to our second quarter of this year. Beginning in the second quarter, we began breaking out our revenues, cost of sales, and gross margins into two categories that essentially differentiate our manufacturing and engineering components of sales.

They are at what we call product related and engineering modification and development, or EMD related sales. We did this to provide more clarity and visibility into our mix of profitable ongoing product sales, and the highly advantageous EMD sales, which essentially represent developmental costs that the Company has paid for.

It is important to recognize that in almost every case, current period EMD sales lead to significantly larger amounts of product sales, that are characterized with our higher historical margins. Almost by definition, EMD sales will relate to our flat panel display systems that are being tailored to the customer's requirements.

A recap of 23 sales reflects the following numbers. In the product category, $1.3 million was for flat panel and $2.7 million was for air data. That combines with our $4 million of product sales at about a 50% gross margin. The EMD sales were all flat panel, at about $1.9 million and a gross profit margin of about 11%.

The R&D spending continues in the company, and as a result we've spent about $2.8 million in R&D in the quarter. $1.1 million of it was the conventional R&D spending and about $1.7 million was R&D spending for specific development modification and engineering efforts which were paid for by specific customers. That investment, of course, is included in the cost of goods sold for the EMD portion.

SG&A spending totaled $4.2 million in the third quarter; an increase of $1.6 million from the $2.5 million spent in the third quarter of 2006. The increase was principally the result of $1.7 million in legal fees incurred in the quarter to protect our intellectual property from infringement. We've talked about that in the past.

That interest income was $728,000 in the third quarter, compared to $800,000 last year. These amounts are similar and reflect higher interest rates this year, offsetting a slightly lower average cash balance in the period. If you remember last year, we spent a lot of money buying back some of our stock.

For the quarter, we had a net loss of $1,350,000 or $0.08 per fully diluted share. This compared to a net loss of $1.2 million or $0.07 per fully diluted share in the third quarter last year. Excluding the exceptional non-recurring legal costs to enforce our intellectual property rights, the net loss in the quarter would have been about $0.02 per fully diluted share.

We continue going forward in a strong financial position and enter the final quarter of the year, with a current ratio of about 9.6 to 1, cash of $57 million, or $3.38 a share. Virtually no debt. Assets of $87 million, of which 65% of that is cash and shareholder equity of $75 million or $4.42 a share.

Clearly, our balance sheet reflects the financial flexibility and capacity that we need to ramp up for the production levels that Roman will talk about in a short time.

New flat panel orders in the third quarter were $35 million, and other new business orders were about $1 million for a total of $36 million in the quarter. As a result, the backlog at June 30, was an all-time record $73 million. This was an increase of $38 million, or over 100% over the June 30, 2006, backlog of $34.3 million.

More importantly probably, the flat panel portion of backlog was $65 million this year, an increase of $43 million or almost 200% higher than the $22 million recorded on June 30, 2006.

Quickly reviewing the results for the first three quarters of 2007, revenues rose 9% to $13.2 million compared to $12 million for the first nine months of 2006. We incurred a net loss of $4.8 million or $0.29 per fully diluted share in the nine-month period, of which about $4.5 million or $0.13 per share was related to the intellectual property, orientated legal fees.

At this point, I'd like to turn the call over to Roman. Roman?

Thank you, Jim. This is Roman Ptakowski, President of IS&S. As we have reported before, your company has structured its business development efforts into Commercial Air Transport, Military, and Business and General Aviation pursuits, to allow us to better capitalize on the opportunity in these market segments.

During the third quarter, we continued progress in each. Perhaps the most significant achievement in the quarter is our agreement to retrofit the American Airlines fleet of B757 and B767 aircraft, with our flat panel display systems. This contract represents an important breakthrough in the commercial air transport market, as many passenger airlines heavily rely on the workforce of B757 and B767 aircraft.

We believe the selection by American Airlines of IS&S flat panel display system as their go forward platform, will spur additional airlines to also select the IS&S product for their own cockpit upgrade programs. We have long planned our entrance into the large, lucrative air transport market, and it is all coming together now.

Operators are realizing that the IS&S cockpit IP flat panel display system for the B757 and B767 fleet, offers the best solution to meet their needs of presenting additional information to flight crews; complying with current and future regulatory requirements such as ADFB; improving dispatch reliability; obtaining weight and fuel savings; reducing the cost of aging equipment, maintenance, repair and obsolescence.

We are beginning to see the early signs that the features of our system will be mandated for safety reasons, such as ADFB and Runway Awareness. Your Cmpany is optimally positioned to offer these features to operators and capitalize on this emerging opportunity.

The Company's B737 design and certification efforts have been refocused, to encompass the specific needs of a large fleet operator. Their additional requirements are applicable to a large segment of the market, and will provide an even more valuable proposition for the B737 operators. We expect to meet this expanded need during fiscal year 2008.

In the military segment, we now provide cockpit IP solutions both domestically and internationally for the C-130, KC10, KC767A, and the L-1011. With follow on orders for the Lockheed C-130 military air transport particularly robust.

IS&S has been selected by the U.S. Coast Guard to upgrade their engine display systems on the C-130. We fully expect this to lead to opportunities for upgrading the entire cockpit.

The Company's success in upgrading Legacy aircraft also positioned us to be selected by Eclipse Aviation to be the forward fit, OEM supplier, of their highly integrated Avio NG cockpit display system for the Eclipse 500 Very Light Jet. The first such equipped aircraft has started flight-testing. This is remarkable achievement on the part of both IS&S and Eclipse. We have been able to deliver a highly engineered and sophisticated cockpit display system in a fraction of the time of the competition. We look forward to a long and successful collaboration with the Eclipse Aviation Corporation.

Another general aviation contract with a similar growth opportunity is the retrofit of the Legacy Cessna Citation aircraft. Cessna has the largest fleet of general aviation aircraft in service, all of which represent potential future business. We certainly believe we will be shipping considerable volumes over the life of this agreement.

Let's now talk about other future opportunities. As mentioned earlier, the backlog has increased by over $32 million in just the past three months. A majority of the increase is in our flat panel display system business. Total backlog at June 30, 2007, was an all-time record $73 million, including $65 million for flat panel display systems.

We mentioned during last quarter's call that we have been selected by two major ATA carriers. The first of those was American Airlines. The second is still undisclosed at the operator's request. However, we have received initial releases and have a contract pending final signatures for a long-term agreement. In addition, we have submitted proposals for over 200 more B757 and B767 systems.

We are expanding our product offering. We received and STC Supplemental Type Certificate from the FAA, for our Class 3 electronic flight bag e-charts during this quarter. This is a capability presented in the forward field of view of the pilot, presenting him with electronic navigation charts powered by Jeppesen, with features such as take-off, on route, approach, landing, missed approach, and go around information. The electronic flight bag e-charts capability has already been provided and installed in a number of [Fellotis] BC12 aircraft.

As we find ourselves on an increasing number of flight decks, adding additional features and upgrades, such as e-charts, can represent a source of strong incremental revenue growth. We have the resources to invest across the entire arrange of production, marketing, and new product development initiatives, to sustain our new order momentum, while simultaneously meeting our delivery commitments of on-time and error free, a performance level which we have proudly achieved throughout our history.

We believe we are quickly establishing our cockpit IP as a flat panel display system of choice throughout the entire aviation industry. I'll now turn the call over to Ray Wilson, for concluding comments.

Good morning. This is Ray Wilson. I'm delighted to have joined the Executive Team of IS&S earlier this month. I hope during this call, it's become very clear that we are at the beginning of our climax. The opportunities in general aviation, air transport, and military, are enormous, and our technology is proven.

It's clear that it's going to be a bumpy ride as we grow, but we foresee a significant trend upwards for a minimum of three, and probably more like five years. It's going to be an exciting ride for those of us on the inside, but with a market worth tens of billions over the next ten years, and the unique solutions we offer, I expect significant increases in shareholder value.

I'd like to open up the call for questions now.

Thank you. The floor is now open for questions. (OPERATOR INSTRUCTIONS) Paul Kaump, Northland Securities.

Good morning gentlemen.

Good morning, Paul.

Good morning, Paul.

Good morning, Paul.

First and foremost, cash flow from operations for the quarter, Jim, do you have that?

Cash flow from operations was probably down a couple of million dollars, Paul. We're spending obviously heavily on research and development. As we talked about the loss or -- the quarter obviously was characterized by a $1.3 million net loss. These are things that I fully expect to come back as strong, as time moves on.

Right. Yeah, looking into the fourth quarter, you guys have talked in the past about achieving kind of a $40 million run rate in terms of revenue. Do you still see that as being possible?

I think it's possible. This is Ray Wilson speaking. They -- the challenge we have is in the Eclipse where we have potential significant deliveries, but we've got some work to do, to qualification. It's not impossible that some of that would slip into the following quarter. But certainly we are targeting getting to that sort of number.

Okay. And then with respect to Eclipse, yeah, they've made some comments that they're running about a month behind in terms of getting the new flat panel up and operational. Does that coincide with what you guys are seeing, and then how might that --?

Yeah, hence my slight uncertainty about confirming the numbers.

Right. Okay.

We're probably in a range six through ten for the quarter.

Okay. Legal expenses, they continue to pile up here. I'm curious how much longer you expect that to last, if there's any way of determining that?

This is Roman Ptakowski. As you can imagine, we're in legal, kind of black out, in a sense, but we can give you what we can say. That a trial is scheduled for the second week of October. There are a number of motions in front of the judge that he has to consider. All of which can impact the length of that trial. We have, we're under court order to keep this information confidential among the parties, very limited exposure even within our own company as to the actual details. Although we can say is that a trial is schedule for the second week of October, and obviously it leads to a conclusion somewhere around that time point.

Okay. And then for the fourth quarter, so I should assume maybe for the model, another $1.7 million in legal expenses, or something south of that, do you think?

We've got a running rate that you can kind of look at, but we can't, we can't really comment on that.

Okay. Last question and then I'll let someone else hop on. Can you just give us a quick update on where some of the STC's stand in terms of the 737/747 and then Cessna Citation, which as I understand and correct me if I'm wrong, is actually going to be theirs.

Yes, specifically they'll have STC, Cessna will hold that. However, on the others, the mention during my comments that the, our efforts on the 737 have been refocused now along a specific operator. Some additional needs that they want, but as to extending the effort, but we think winds up with a better-valued proposition for all the owner operators for the long run. We expect to achieve that STC during fiscal year 2008.

On the 747 we're in protected discussions with the FAA, and basically on their time table. We've submitted all the information that they've requested. We've done the testing and so on. We're in the FAA queue, if you will.

Okay, great. Thanks guys.

Thank you.

Michael Ciarmoli, Boenning & Scattergood

Good morning guys. How's everybody doing?

Good Mike, how are you?

Good morning Michael.

Good, good. Just quickly, Ray, did you say for the fourth quarter, we can expect around revenues in the $6 million to $10 million range?

Yes I did.

Okay. And then if you can quickly give us a more detailed update on maybe what to expect from Eclipse, American, and Cessna. How should we look at I guess, revenues in the coming quarters, and years from those programs.

Michael, we're under, again non-disclosure agreements actually with all three of those.

Okay.

You really need to speak to them. They have their own particular programs of how to do this. Certainly with Eclipse, they're very public with their forecasting. We are in a position to support their needs.

On the Cessna Citation, again, this is a campaign on their part. We will not disclose what their plans are.

And American Airlines has got a number of upgrades going on, part of which is the cockpit upgrade, and again, we'll leave it to them to disclose what they wish, at whatever time.

Okay. And then earlier in the call, you mentioned the progress you're making, I guess with the other major carrier. Can you give us some a -- kind of quantify what that relationship would look like in terms of revenue or planes?

Not at this point. Again, these different owner operators see competitive advantage to holding onto that information as long as they can.

Okay.

We don't want to violate that. We don't want to be seen as somebody who violates any of that type of information.

Okay. Is it similar, safe to assume it would be something similar to a passenger carrier, or a cargo carrier, along those, that magnitude?

It would be safe to assume that, yes.

Okay. Can you also give us a -- the backlog for the quarter -- can you give us the composition of that backlog in terms of customers?

We really don't go into that, Mike. We mentioned that $65 million of the backlog related to flat panel business, but again, if we gave you the component, you'd know, since we haven't shipped anything with American, you'd know exactly what the American contract is, and as Roman pointed out, this is proprietary as far as they're concerned.

Okay.

I would like to just add the comment that all of these are our toeholds into these different market segments that we've talked about. They give us the platforms from which to begin to experience what we think are tremendous growth opportunities. Each one is the basis for the next raise of the confidence level of the customer base that IS&S is here to stay, will perform, gives them a long-term product support that they require to feel confident in the selection process. So all of these are, we view as very good news in the marketplace for us, because each one leads to the next contract.

Okay. And then, just to, I guess Jim, on the margins side of the business. Can you give us an idea of where the margins for both the product line items and engineering settle out of here? It looks like engineering development gross margin was about 11% this quarter, up slightly from last quarter, but down year-over-year. Can you give us an idea of where those trend going forward?

The EMD margins, we don't look really to capture much margin on those programs. If we get anything in the 10% area, we're delighted. Because keep in mind, that's our pay for R&D.

Okay.

With a huge multiplier on the end of it, for future product sales. On the product sales side, though, Mike, we anticipate the margins to continually gravitate upwards. You can see even at the low level of revenues that we've had to date this year, the margins have been remarkable in terms of industry standards.

We have a 50% gross margin in the current quarter. Those margins, as volume increases, and we begin to over absorb a fixed operating cost of the business, will grow and I'm not going to give you a number, but I think they will continually escalate, and you guys won't be disappointed with them.

Okay. Great. Thanks guys. I'll jump off and let someone else get on.

Thanks, Mike.

Thank you.

David Campbell, Thompson, David

Hi, good morning everybody. Wanted to ask, is the American contract fully in the backlog, or just some of it?

It's fully in the backlog, David, in terms of the initial release that we got from American.

Uh hm. Right. Will the second ATA carrier that you're referring to ever be disclosed, or don't you know?

No, it will be disclosed, but we'll do it on their timetable. But there is an intention to disclose and make it available and that will occur. Just as we sat on the American Airlines information until they were prepared to disclose it, we would expect a similar pattern here.

When this is finalized -- it's not finalized yet as I understand it, so it's not in the backlog, correct?

It's a correct statement. It's not the backlog.

That's correct, David.

The Eclipse problem seems to be that they're -- are they late in installing flat panels or are they just late in getting -- are they just late in manufacturing the plane?

We don't -- you'll need to speak to Eclipse about their situation. We're on target with our contractual arrangements with them. We're working hand and hand to perform to their needs to their schedules. We're very pleased with the progress. As I mentioned earlier, that that's been a remarkable achievement on the part of our engineering staff, at the grade at what we believe arguably is, right now, is about the best cockpit in the marketplace with the advanced integration capabilities that have been put into the product.

The fact that it's already flying and under going tests is a real testament to the teamwork on both party's sides. They've got a dedicated team of engineers spending unbelievable hours to make the product perform, as well as we are. We're very pleased with the progress, the selection, and we look forward to extremely successful long-term collaboration with Eclipse Aviation.

Okay. There was an article recently in a industry, in the [Business Journal], about Marshall's in there, substantial -- apparently substantial interest in Europe for retrofitting cockpits on the C-130s. In fact, they mentioned that the dollar value of their business with Netherlands alone was $69 million. Now that included some equipment, obviously other than flat panels. I just wondered if you have any Marshall's orders in your backlog, and if not, why not?

The answer is, yes, we do. We are the cockpit display provider to Marshall's. We have an agreement with them. We are on the Netherlands program with them. We have other programs in the backlog with them, and we also have other programs that were proposals that have been submitted to additional customers, none of which is in the backlog. But Marshall's Aerospace of Cambridge, and IS&S have a very good ongoing relationship. We have established a nice business relationship with Marshall's and we fully expect that to continue to grown.

So the Netherlands, you're part of that $69 million is in the backlog?

That is correct.

But wait a minute. Wait a minute. Our piece of that would be in the backlog.

That's what I said.

Not the whole $69 million.

I'm not going to speak to what Marshall's is doing, but part of what they're doing for the Dutch Air Force, is doing other things with airplane, including like structural modifications and so on. We're not part of that, but the cockpit display system is the IS&S cockpit display.

And the important thing with Marshall's, David, as you point out, our contract with them is they have selected us the common core architecture for all flat panel upgrades they do in the future.

And with that David, we really got a whole ton of people in the queue. If you could make room for somebody else, I'd appreciate it.

Yeah, but they're not in the backlog though. I mean there's nothing firm right?

They are in the backlog.

They are in the backlog.

Only the Netherlands.

We have other portions of their business in backlog, yes.

According to the report, there are a lot of other countries that are considering upgrading the C-130s.

That's correct. Those which they are considering, are not in backlog because orders have not been placed by those owner operators with Marshall's. But it is our expectation and belief, that when those orders are placed, they will be placed with IS&S through Marshall's Aerospace.

Hmm. What about the Tristar Program in the U.K.? Is that in your backlog, too?

Yes, it is.

Yes, that's in the backlog.

Hmm hm.

David, we don't want to get into the specific identification of what's in backlog for particular reasons, because if I told you six out of the seven, you'd by definition, you'd build a seventh one in there. So let's move on, if we can here. We've got a lot of other people in the queue, and we're running out of time, David.

Okay. What about the legal fees? Do you have any idea when they'll end?

We can't talk about those, David.

Do you know when you're -- do you know anything more about the status of electronic flight bags? When will you get any business for that, and how big a market is that?

The market for electronic flight bags is huge. Roman just mentioned that we got an STC for a Class 3 electronic flight bag which is the premier class type, and we'll be marketing those, and hopefully we'll be selling a lot of them in the future.

Okay. Thanks.

Thank you, David.

Thanks, David.

Paul Kaump, Northland Securities

Yeah, I'll keep this brief. You guys were recently at the Paris Airshow and the Oshkosh event, if I'm not mistaken. I was just curious, what you came away from those trade shows with in terms of either marketing pipeline, or contacts, and how well you were received at each of those shows?

This is Ray Wilson, Paul. I attended both of those shows. Really Paris was my first week on board, and I must say the interest was phenomenal. We had a lot of people across the stand at both shows, but more importantly, to your point, we picked up specific contacts in both cases, which are being followed up currently and will continue to be followed up, and I think will lead to opportunities to bid that we haven't necessarily anticipated previously.

Okay. Did you come across a number of folks in the European Community who are looking for a solution in the near term, or is it more kind of long-term, we'll just have to wait and see.

I think in the European Community, it's more long-term to be quite honest.

Okay. All right. Thanks.

Thank you.

Michael Ciarmoli, Boenning & Scattergood

Hey guys, just along the lines of capacity. You're starting to get a lot of attraction here, building the backlog. Is there going to be a need for facility expansion, adding staff and/or equipment, and how should we look at G&A expenses and sales and marketing expenses going forward related to that?

We consider that actually good news and a real opportunity, and yes, we've been planning for that. We have expanded our production capacity. We've made investments. We will be -- are planning a facility expansion. In fact, we've already leased additional space in the industrial park where we're located to make room for additional capacity. So we'll move some office staff into a building [nominally] in the same location where we are about a quarter of a mile away. We look forward to the end result of that expansion. Obviously, anticipate additional revenues. We are set ourselves up for this future growth opportunity. You'll see those impacts hopefully shortly. We're trying to get those results as soon as we can for everybody.

Okay, what kind of capital spending is going to be required for this expansion?

Well, if we build the building which Roman has alluded to, it could be $4 million or $5 million for expansion. But right now, we're leasing property which is virtually no capital tied into it. That will just burned up in operating expenses. But keep in mind, Michael, that we're not under any great pressure here. A couple of years ago, we did $63 million in revenue and at that point in time, we probably were at the -- and we did that on one shift, at maybe 60% to 70% capacity. We could go to two shifts and comfortably crank $100 million out of this building, but we see a vision for much more than that. The plans are in place to start activating, expanding the production floor space here by about 50%.

Okay. And then, Jim, just along the lines of G&A, and R&D, how should we look at that going forward?

Well it's been -- the model that we've talked about that the Company tries to adhere to, but it doesn't work out in volatile times, like the one right now is that -- R&D we would like to spend about 12% of revenue on R&D. We think it's a very manageable number. And as we talked about, our R&D has a significant multiplier effect in terms of future sales. The 12% is a good number.

Okay.

16% of sales would be good number for the SG&A piece, X-legal fees, and we think we can manage to that model as we start, a consistent ramp up going forward Michael.

Okay. Great. And a last question, then I'll jump off. Roman, you mentioned something earlier about a possible safety mandate. Can you talk, I mean is that something that's still a ways out, as the FAA starts to manage more air traffic in the skies, and --

In general, I think of airspace as three-dimensional. The FAA has addressed RVSM reduced vertical separation, but you think of it, there's also a horizontal separation and a lateral one. So as the airspace becomes more crowded, and always the drive for increased safety, the FAA is looking at issues such as RNT which is precision navigation, ATSB, which is improved awareness of your aircraft compared to other aircraft in the skies.

You know, the choke points are around the major airports. So already, pieces of that type of improved safety performance is in place around crowded airspace. We just see that that continues to be an expansion. The FAA is, piece by piece, around airports such as Los Angeles's, increased the requirements for safety.

For a long time they did an experiment up in -- since that experiment they've had a program in Alaska called Capstone. That has shown that the technology is possible. It is possible to get this type of improved performance into the aircraft space. All of that requires more information in front of the pilot. That's exactly what we do. We have that cockpit IP portal of ours that allows us to present information in a very cohesive fashion and a very user-friendly fashion to the pilot community and we think this is perfectly attuned to our need.

How they get that done, how they get it phased in, FAA direction, they have a lot of constituencies they need to address. But we don't see that it won't happen, it will happen. It will be on their timetable, and piece-by-piece it is being implemented. It's already driven some of our customers to invest in cockpit display upgrades. And the reason for this increased proposals on our part and so on, because the large fleet operators, understand what's going to happen. Not an actual mandate yet, but hopefully we're well ahead of the curve when those mandates do get put into effect.

Great. Thanks guys.

Greg Fujii, CCM

Good morning guys. This is Greg Fuji with Coghill Capital. Thanks for taking my question. I just had a few quick ones. I guess, first, on a previous call you mentioned that the backlog extends over several years, and can you give us a sense for what your visibility is with respect to backlog for (inaudible) revenue over the next 12 months?

I would say that the comment that was made earlier is that the $75 million backlog is probably spread out over about 4.5 years. A lot of that relates to customer demands associated with -- for example, American Airlines, we will deliver a product to American Airlines based on their demand schedule, not on our ability to deliver.

That same opportunity exists with some of the other portions of the backlog. The important thing here is, is that it's going to give us, it's going to lay in probably about a $20 million a year firm piece of business on a go-forward basis that will be augmented, obviously, by a lot of book and ship business, and by the fact that the Eclipse Program is in there, at a very marginal amount of backlog, because they release backlog orders to us on an incremental basis. So I'm not sure that answers your question fully, but that's how we envision it here.

Got you. So the ramp up -- can you give a sense for what your lead time would be. Would one of your customers come to you and say, "We need X number of flat panel systems, next week, next month, over the next six months?"

It depends. It depends. If we have the STC, the ability to respond quickly is there. If we don't have the STC, it would add time on to achieve and acquire an STC from the FAA. But on product that we have fully developed our ability to book and ship, is well recognized in the [obvious M] business, we used to book and ship material in the same quarter. We have that capacity to do with certain elements of the flat panel as well.

Got you. Got you. And just two other quick ones, on share repurchases for the Company, do you guys have an existing authorization remaining or is- have you repurchased all your shares?

We do not have an existing authorization remaining. The authorization that was put in place last year, expired on June 30, 2006, and that is obviously a Board of Directors decision, that they can put in place at virtually anytime.

Okay. Got you. And then, there seems to be some sort of new service that kind of roving around and looking for Form 4's that are filed and things like that, but nonetheless, some small share sales have come up on just kind of news headlines under your ticker symbol. And so, I'm wondering, I know that there have been some donations to potentially a charity, or something like that, but can you give some color around the insider share sales?

The only thing I can say, is that the only insider sales we're aware of are the sales by our Chairman, under a 10B5 filing that he made with the SEC.

Okay. Got you. And that, are those- is that kind of a charitable contribution?

I cannot comment on it.

Okay, fair enough. Thank you, guys.

Your welcome.

Thank you, Greg.

Thanks, Greg.

Tamara Manukian, Greenwood Investments

My question has been answered. Thank you.

Thank you very much.

Okay, thank you everybody.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.